Companies under common ownership can form a Tax Group, subject to meeting the relevant conditions.317 This allows the Tax Group to be treated as a single Taxable Person, reducing the compliance burden on individual companies by consolidating accounts and eliminating intra-group transactions, and increasing flexibility in the utilisation of Tax Losses.318

 

Businesses and business activities conducted by a Government Entity can also apply for this treatment.319

 

For further details on Tax Groups, readers are advised to consult the relevant Ministerial Decisions, including Ministerial Decision No. 125 of 2023 on Tax Groups.320

 

Requirements to form a Tax Group

 

In order to form a Tax Group, a Parent Company must make an application to the FTA. The application must be made by the Parent Company and each of the Subsidiaries seeking to become members of the Tax Group. Both the Parent Company and its Subsidiaries must be resident juridical persons under the Corporate Tax Law and under a relevant Double Taxation Agreement (if applicable), have the same Financial Year, and prepare their Financial Statements using the same accounting standards.321 No member of the Tax Group can be an Exempt Person322 or Qualifying Free Zone Person.323

 

In addition, there are ownership requirements such that the Parent Company must directly or indirectly:

 

• own at least 95% of the share capital of the Subsidiary;324

• hold at least 95% of the voting rights in the Subsidiary;325 and

• be entitled to at least 95% of the Subsidiary’s profits and net assets.326

 

A Parent Company or Subsidiary must not be considered resident for tax purposes in another jurisdiction under a relevant Double Taxation Agreement.327 This may require the Parent Company or Subsidiary to maintain documentation to confirm that it is not resident for tax purposes in another jurisdiction, such as a confirmation from the relevant tax authority of the other jurisdiction.328

 

Formation and cessation of a Tax Group

 

A Tax Group will be formed from the beginning of the Tax Period specified in the application submitted to the FTA. The FTA may also determine the formation date as being the beginning of any other Tax Period.329

 

A Tax Group will cease to exist if the FTA approves the dissolution of the Tax Group, or if the Parent Company no longer meets the necessary conditions throughout the

 

relevant Tax Period.330 The FTA may also dissolve or change the Parent Company of a Tax Group at the FTA’s discretion based on information available to the FTA. If this happens, the FTA will notify the Parent Company.331

 

Joining or leaving a Tax Group

 

A Subsidiary is able to join an existing Tax Group by applying to the FTA with the Parent Company.332 Newly established Parent Companies or Subsidiaries can join an existing Tax Group from the date of their incorporation, and do not have to wait until the beginning of the following Tax Period.333

 

A Subsidiary must leave an existing Tax Group if:

 

• an application to leave the Tax Group by the Parent Company and that Subsidiary is approved by the FTA; or

• if the Subsidiary no longer meets the relevant conditions to remain in the Tax Group.334

 

A Parent Company of a Tax Group can also make an application to the FTA to be replaced by another Parent Company without discontinuing the Tax Group if the new Parent Company meets all of the conditions satisfied by the former Parent Company.335 An application can also be made if the former Parent Company ceases to exist and the new Parent Company or a Subsidiary is its universal legal successor.

 

A company will be treated as having left the Tax Group from the beginning of the Tax Period in which it no longer meets the conditions.

 

Compliance with Corporate Tax requirements

 

The Parent Company represents the Tax Group and is responsible for complying with the Tax Group’s Corporate Tax obligations. 336 Nevertheless, both the Parent Company and each Subsidiary are jointly and severally liable for Corporate Tax Payable by the Tax Group for each of the Tax Periods in which they are members of

 

the Tax Group.337 This liability can be limited to one or more members of the Tax Group if approved by the FTA.338

 

Taxable Income of a Tax Group

 

To determine the Taxable Income of a Tax Group, the Parent Company must consolidate the financial accounts of each subsidiary for the relevant Tax Period by the way of aggregation. It must eliminate transactions between the members of a Tax Group, including adjustments from valuations, and transactions between two or more members of the same Tax Group.339

 

The unutilised Tax Losses of a subsidiary that joins a Tax Group will become carried forward losses of the Tax Group.340 These are known as “pre-grouping Tax Losses”. Pre-grouping Tax Losses that are carried forward can only be used to offset the Taxable Income of the Tax Group insofar as this income is attributable to the subsidiary which brought the Tax Losses into the Tax Group.341 The pre-grouping Tax Losses that are to be carried forward to be utilised in the Tax Group cannot exceed the 75% Tax Loss relief limit. The limit will be applied to the Taxable Income of the Tax Group (see Section 6.7.1.).342

 

If a new Subsidiary joins an existing Tax Group, the unutilised Tax Losses of the existing group cannot be used to offset the Taxable Income of the new Subsidiary.343 If a Subsidiary leaves a Tax Group, the Subsidiary will retain any unutilised pre- grouping Tax Losses brought into the Tax Group, but any Tax Losses incurred while it was a Subsidiary of the Tax Group will remain with the Tax Group.344

 

The 75% cap on the utilisation of carried forward Tax Losses and the limitation on Tax Losses carry forward are applicable at the level of the Tax Group.34

 

Formation of a Tax Group

C LLC is a UAE resident company. C LLC acquired F LLC (another UAE resident company) on 31 March 2026.

F LLC wholly owns Z LLC (another UAE resident company). C LLC owns 100% of the share capital and holds 100% of the voting rights of F LLC. F LLC owns 100% of the share capital and holds 100% of the voting rights of Z LLC. All of the companies use the same accounting standards and have the same Financial Year.

Although C LLC does not directly own any share capital or hold any voting rights in Z LLC, it does so indirectly through its ownership of Z LLC’s owner, F LLC. C LLC, therefore, meets the ownership requirements of F LLC and Z LLC in order to form a Tax Group, as C LLC indirectly owns over 95% of the share capital and voting rights of both F LLC and, by extension, Z LLC.

C LLC (as the Parent Company), F LLC and Z LLC made an application to form a Tax Group, effective from the Tax Period beginning 1 September 2026.

The application to form a Tax Group was approved by the FTA. At the end of the Tax Group’s first Tax Period on 31 August 2027, each group company’s Accounting Income for the year, before consolidation, is as follows:

C LLC	AED 10,000,000
F LLC	AED 8,000,000
Z LLC	AED 9,000,000

During that period, F LLC and Z LLC received dividends from UAE resident companies totalling AED 3,000,000, and C LLC spent AED 250,000 on client entertainment. C LLC had AED 5,500,000 of brought forward Tax Losses from its previous Tax Period (1 September 2025 – 31 August 2026).

In order to determine its Taxable Income for the period, C LLC must first consolidate, by way of aggregation, the Accounting Income of each company in the group and then make the necessary tax adjustments, including applying its Tax Losses, at a group level.

Domestic dividends are Exempt Income for Corporate Tax purposes. As a result, the dividend income of AED 3,000,000 should be excluded from C LLC’s Accounting Income.

Only 50% of entertainment expenditure is an allowable expense for Corporate Tax purposes. As a result, 50% of the expenditure (AED 250,000 x 50% = AED 125,000) must be added back to C LLC’s Accounting Income.

C LLC’s Taxable Income is therefore:

C LLC – Accounting Income	10,000,000
F LLC – Accounting Income	8,000,000
Z LLC – Accounting Income	9,000,000
Consolidated Accounting Income	27,000,000
Domestic dividends	(3,000,000)
Entertainment expenditure	125,000
Taxable Income	24,125,000

As the Parent Company, C LLC’s Tax Losses incurred before grouping can be set off against the Taxable Income of the Tax Group. C LLC can, therefore, reduce the Tax Group’s Taxable Income by a maximum of 75% for the relevant Tax Period (AED 24,125,000 x 75% = AED 18,093,750). As the amount of carried forward Tax Losses is less than this, C LLC can use the whole of its AED 5,500,000 of Tax Losses in this Tax Period. The Tax Group’s final Taxable Income is therefore:

Taxable Income of Tax Group	24,125,000
Tax Losses	(5,500,000)
Final Taxable Income	18,625,000

This is the Tax Group’s Taxable Income which should be reported to the FTA for the Tax Period ending on 31 August 2027.

The Tax Group’s Corporate Tax liability will be as follows: 0% x 375,000    

                                            0